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Purchasing lease

Discussion in 'Commercial Property' started by Bayview, 11th Jul, 2016.

  1. Bayview

    Bayview Well-Known Member

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    Hi All,

    Have been approached by a guy who has offered to "buy my lease" for our workshop....

    He doesn't want the business; just the building to use.

    I have 3 years left to serve of a current 5 year Option, with a further 5 year Option after that.

    Has anyone had any experience with this, and how is it structured, general rules of engagement, etc?

    Thanks in advance.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It is an assignment generally. Landlord needs to agree.
     
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  3. RPI

    RPI Property Lawyer, Town Planner Business Member

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    Would be a deed of assignment of lease. Typically requires approval of both the landlord and the landlord's bank.

    Be careful that the assignment does not have an ongoing guarantee of performance by you/your entity. Often see that snuck into the fine print so that if the new lessee doesn't pay the landlord can go you at the same time.
     
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  4. Scott No Mates

    Scott No Mates Well-Known Member

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    @Bayview

    Issues to be considered:
    Is the use compatible with the current usage clause?
    Is current rent below market? By how much? Are they prepared to pay a premium for the lease or do you just want out?
     
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  5. Bayview

    Bayview Well-Known Member

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    It is only an interim enquiry at this stage....he was just sussing out if I would be interested, and I'd never heard of it.

    The guy didn't divulge what use he has intended for the use of it (assuming I even go to step 2).

    Rent is current market value; indexed to market value each Option renewal...next renewal in 2019.

    But; I can't see how it is even worth me even considering; I am assuming I basically walk out and hand over an empty building?

    I would have no business and no premises to operate it from?

    I must clarify one point too; he found me via an Ad I placed on Gumtree to sell the business - via a Vendor Finance.....very few are selling this way, that I have seen.

    The reason I did this is because these sorts of businesses are virtually unsellable these days (unless you give them away practically), and most mechanics are broke, week-to-week paycheck petrol-head boguns as well, and would struggle to stump up enough cash to buy most of them.

    So, I thought it might be a good opportunity for me to escape the place, and to help set up a keen young bloke who needs an opportunity, but hasn't the resources....so far no takers.
     
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  6. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    If a sizeable chunk of your goodwill is in location/passing traffic, then you would want to be compensated for this.

    May mean you can get out of the business once and for all without a lease around your neck till 2019...
     
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  7. Bayview

    Bayview Well-Known Member

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    I gave him my rent figure, and the remaining Lease term, and said to come back with an offer, and it would be then whether we talked ever again about it or not.

    For those who are savvy; my rent is $2650p/m, and the remaining Lease is 3 years on current Option, with another 5 year Option after this; what would be an expected reasonable offer?

    Of course; reasonable doesn't mean reasonable to me if I am left with no business and no premises to operate from - is this a complete waste of time even thinking about it?

    Correct me if this is wrong; If he pays me a sum for the Lease, he will then still have to pay the LL the usual ongoing monthly rent after he takes over?

    If so; how does he benefit from a take over of the premises?
     
  8. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    Depends in if you want out of the business or not, and what it owes you in terms of finance/losses carried forward, and what plant and equipment can be sold for.

    I have been following your threads since SS and to be honest by now, I would have just closed it down and moved on regardless of the financial cost... sounds like its a ball and chain thats never letting go
     
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  9. Kinnon Bell

    Kinnon Bell Finance Broker

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    What were you planning on doing if you sold the biz? Wouldn't the outcome be similar?

    I would think that selling the lease would be advantageous in the respect that if you sold the biz any purchaser with half a brain would put in some kind of clause that you would not be able to open same or similar biz within XX kilometers. At least if he purchases the lease then you may be able to operate biz elsewhere.
     
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  10. sanj

    sanj Well-Known Member

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    It's a loss making business he's trying to get rid off effectively for free; why would he want to open up again down the road?
     
  11. Kinnon Bell

    Kinnon Bell Finance Broker

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    BV mentioned a while ago about either expanding or opening up in another premises where rent may be cheaper.
     
  12. Bayview

    Bayview Well-Known Member

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    Yes; would not consider opening up another one.

    Actually, even though the turnover is down (as is the whole industry)....since we sold our house and cleared all our debts (including the loan debt to buy the business), and since I trimmed the Staff down, and since we offloaded the vacant lot next door we used to use for parking cars (another rent cost per month), and a few other cost cutting measures..the overall picture is now quite profitable.

    I still have to work a large number of hours (which was not the intention when I bought it), but s h i t happens, and you just suck it up and keep on punching...if I cannot sell it then I will simply keep it, draw a nice wage as I can now do, and keep on working.

    I am not trying to sell it for free; I am hopjng to sell it to a young bloke who has no money on a Vendor Finance arrangement - which could attract a bit of a premium (which may occur with our recently acquired 4th Year apprentice...24 years old, fantastic mechanic, a go-getter and keen; has 3 kids and no money; he would be perfect for the deal I reckon).

    Just have to try him out for a little while longer to see that he is a trustworthy possibility, and then might raise the subject and see how he reacts.

    Plant and equipment is really only worth "firesale" dollars these days for this sort of thing....pennies on the dollar.

    A multi-million dollar workshop business closed down late last year; not far from us - the bloke tried to sell it; had no luck; just retired, closed the doors and practically gave most of the equipment away and/or sold it for next to nothing to clear the building.

    I owed $430k on the business loan (purchase cost of the Business, stock and equipment)...hard to close down and carry that debt (plus a couple of others).
     
  13. Bayview

    Bayview Well-Known Member

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    Possibly. I don't expect to get anywhere near a decent offer for the lease to make it worth closing the doors and walking away. I don't have any idea what he might offer and what is fair and reasonable, but I can't see it being more than about $10k?

    If I sold the Business for even half what I paid for it, we would cop about a $200k loss (too bad, so sad and suck it up), but the $200k we might get for it would pay off the small loan still outstanding on the PPoR we bought in Dec. This is currently tenanted (we are renting currently as well), so we would keep that going with the tenant for a time and it would be pos geared even more.

    We also still have the IP in W.A which is debt free, so there is that pos geared income as well, and we will also have the income from the soon to be finished construction of our Holiday Villas over in Ubud, and my wife earns a decent dollar in her job, so I could afford to have a bit of break, and would probably look to go back to teaching golf part-time...easy.

    If no sell; just keep working...

    There is a building not far from us which has been vacant for almost 2 years now, and I have been watching it (but not for another workshop business to go in there); but the rent is not cheaper than what we pay now, and they haven't dropped the price...
     
  14. Tonibell

    Tonibell Well-Known Member

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    Hey, great to here things are improved for the business.

    The sale of the lease sounds like a waste of time - be different if he had identified your site as the one he absolutely must have rather than noticing an advert on Gumtree.

    With the new mechanic you should be pushing him to take on more of your role. The best management buyouts happen after they have been running the business for a few years and the owner is not contributing much.

    You should work towards freeing yourself up - while increasing his pay a bit.
     
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  15. Bayview

    Bayview Well-Known Member

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    Thanks TB.

    Yep; there is the hope this young guy might be the real deal...
     
  16. Luke T

    Luke T Well-Known Member

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    Hi Bayview,
    I remember when you first bought into the business and you were so pumped! From mymemory it was making good money to strat with but you had trouble getting anybody decent to manage it?
    I Have owned a few mechanics workshops too actually (in my younger days!)so get what you are saying but dont give up hope .
    There are some very good managers or young guys who want to run their own business.I would do a nice flyer up on the details (limited ) and take the flyers around to other workshops and hand them out .
    I have done this for finding tennants in commecial shops (hairdressers and beauty) and usually go to areas where the rent is much higher than what i am offereing and i write that on the flyer.(usually the retails shops charge mega rents of course)
    I believe you will find someone-You only need one buyer !